GM to end vehicle, engine manufacturing in Australia

General Motors, in the latest blow to Australia's auto industry, will end vehicle and engine manufacturing and scale back engineering operations in the country by the end of 2017.

The company's Holden unit, a mainstay in Australia for decades, cited the high cost of manufacturing in one of the world's smallest but competitive markets and one that has also been upended by a steady rise in imports, mostly from southeast Asia.

There has been widespread speculation of the move in recent days and earlier Tuesday, in Australia, GM officials said no decision had been made.

“We are completely dedicated to strengthening our global operations while meeting the needs of our customers,” GM Chairman and CEO Dan Akerson said in a statement late Tuesday. “The decision to end manufacturing in Australia reflects the perfect storm of negative influences the automotive industry faces in the country, including the sustained strength of the Australian dollar, high cost of production, small domestic market and arguably the most competitive and fragmented auto market in the world.”

Australia generates annual sales of about 1.1 million new vehicles, but deliveries of locally produced vehicles have fallen to less than a quarter of total industry volumes, from almost 389,000 in 2005.

Holden, which claims a 10 percent share of the Australian market, posted a loss of 153 million Australian dollars in 2012. It has been a GM subsidiary since 1931 and also serves as a major engineering and design center for the automaker, notably for rear-wheel drive cars such as the Chevrolet SS.

Japan's Mitsubishi Motors Corp. discontinued manufacturing in the country in 2008 and Ford Motor Co. said in May it would shutter its two Australian auto plants in October 2016.

With GM's decision to end production, there is concern Toyota Motor Corp. will follow, prompting a collapse of the country's domestic auto industry that employs more than 40,000 workers and supports 150 suppliers.

GM said about 2,900 jobs will be impacted over the next four years; 1,600 workers at a vehicle manufacturing plant in Elizabeth and approximately 1,300 from Holden’s Victorian workforce.

Holden's V-6 engine plant in Port Melbourne, Victoria, opened in 2003 at a cost of $400 million and marked GM’s single largest investment in Australia in more than 20 years.

GM said it will record pre-tax charges of $400 million to $600 million in the fourth quarter of 2013 as part of plans to shutter its Australian manufacturing operations.

The charges will consist of approximately $300 million to $500 million for non-cash asset impairment charges including property, plant and equipment and approximately $100 million for cash payment of exit-related costs including certain employee severance related costs, GM said.

Additional charges are expected to be incurred through 2017 for incremental future cash payments covering employee severance outlays. GM said severance terms are subject to negotiations with the company's unions.

GM said Holden will continue to have a significant presence in Australia beyond 2017 with a national sales company, a national parts distribution center and a global design studio.

Mike Devereux, chairman and managing director of GM Holden, said the company will provide transition assistance for workers in South Australia and Victoria.

“This has been a difficult decision given Holden’s long and proud history of building vehicles in Australia,” Devereux said. “We are dedicated to working with our teams, unions and the local communities, along with the federal and state governments, to support our people.”

The Australian auto industry has depended on government support for years because of soaring manufacturing costs, the strong Australian dollar, cheap imports and weak exports.

The local carmaking operations of GM, Ford and Toyota Motor Corp. have been hit by an Australian dollar that surged almost 50 percent against the U.S. dollar from 2009 to 2012, making exports uncompetitive and boosting the appeal of imports.

Prime Minister Tony Abbott’s coalition government, facing a deteriorating budget position, plans to cut $457 million in subsidies to the car industry by 2015.

Holden’s decision spells the end of the car industry in Australia and Toyota will be unable to survive, said Dave Smith, head of the Australian Manufacturing Workers’ Union’s vehicles division.

“All of the manufacturing will go,” he said.

Earlier Tuesday in Australia, Devereux told a government-appointed panel looking into the future of the car industry that GM needed "a public-private partnership over the long term to be relatively competitive."

His appearance before the panel was closely watched amid speculation he might announce a decision on Holden's future.

It costs $3,750 more to build a car in Australia than at GM's other plants in Asia, he said, and that gap would have to shrink with the help of government assistance and further cost reduction efforts to keep Holden's operations open.

GM’s Holden unit received an average of A$153 million a year in Australian federal government assistance from 2001 to 2012, according to a Nov. 27 submission to the government’s Productivity Commission.

The value of government assistance has outstripped Holden’s own capital investment every year since 2007, according to the report. Since 2004, the GM unit only posted a profit in two years, 2010 and 2011.

The sale and service of Holden vehicles will be unaffected by the move and will continue through GM's existing network of Holden dealers in Australia and New Zealand.

Bloomberg and Reuters contributed to this report.